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May 2016

PMI indices dominate the week

Published: Tuesday 03 May 2016

  • RBA cuts base rate to fight deflation
  • NZ unemployment data should strengthen NZD
  • PMI indices dominate the week
Well you've only gone and done it mi ducks. Leicester beat all the odds (5,000 to one odds as it turns out) to seal the premiership win and I don't even think Tottenham fans will be too upset at the culmination of this particular movie plot. I can see it now, Bruce Willis as Ranieri , Matt Damon as Jamie Vardy; It'll happen, mark my words.
I hope your May Day weekend was a good one; sonic booms notwithstanding.
We start the shortened week in the UK with news that the Reserve Bank of Australia cut its base rate by 25 basis points to just 1.75% last night. This is an all-time low and reflects the concern the RBA is feeling over the slowdown in demand for Australian exports which is causing a slump in inflation.  And whilst it isn't mentioned in the statement, the strength of the Aussie Dollar is making it even harder for exporters and a lower base rate will weaken the AUD. We saw that straight after the announcement and the GBPAUD exchange rate is A$1.94 at the time of writing. That's 11 cents higher than the low we saw last week. There may be more information in the Statement on Monetary Policy that the RBA will release on Friday and Thursday's trade deficit announcement should show some improvement, so there is scope for the AUD to recover somewhat in the latter part of the week. These next few days may offer the high points in the GBPAUD rate. 
The rest of the week is awash with purchasing managers indices. These measures of business sentiment will cover service, construction and manufacturing sectors in the UK, Europe and the US amongst others. The results are expected to be mixed; marginal improvement in the US, minimal decline in the UK and largely unchanged in Europe.  With so little expected of this data, any marked variation will have the ability to shift exchange rates. Beware.
In the short term, tonight's New Zealand employment and earnings data is expected to be rather upbeat, so the NZ Dollar, which has levelled off against the Pound over the last few days, could well strengthen in the wake of that. As with the Aussie Dollar, today may be the nigh point for those needing to buy NZD.
And in the category of 'you couldn't make it up' I give you the news that Lidl has had to recall all of its own-brand tinned herring fillets because the cans do not say 'May contain fish'. The Food Standards Agency forced them to do so because the labelling is incorrect. Apparently people who go out to buy herring fillets might not know they are fish based products. If that is true, should they even be allowed out to the shops unaccompanied?
The match
The world ended in a massive fireball and, because of the massive influx of newbies, a border dispute emerged between Heaven and Hell; both needing more land for their huge populations. God invited the Devil for peace talks which were stalled until the Devil suggested they hold a football match to decide on a particularly complicated issue.
God, always fair, told the Devil, "The heat must be affecting your brain, the game would be so one sided, don't you know all the 'good' players go to heaven?"
"That may be true, "Said the Devil, "but we've got Maradona, Suarez and all the referees."

Daily Currency Analysis with David Johnson

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